Investors should have known trouble was percolating just beneath the surface of the late summer calm in the stock market.

To paraphrase a favorite line from old Western movies, It was quiet out there -- too quiet. The languid days of late July and August gave way to a paroxysm of volatility in September. The Standard & Poor's 500 index finished the third quarter up 3.3 percent, but that modest return doesn't tell the complete story.

Investors were served a smorgasbord of economic and financial turmoil amid a backdrop of confusing political and racial crosscurrents. And yet the bull market continued to lumber forward, albeit in fits and starts, with the S&P 500 up 6.1 percent year-to-date. The Dow Jones industrial average has gained 5.1 percent so far this year, and the Nasdaq did even better with a 6.1 percent gain.

"The market is a forward-looking indicator, and as volatile as things have been lately, it sees that things have stopped getting worse and are getting better," said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. "The market is starting to price in this improvement."

The stock market began the quarter with a fine rally in the first two weeks of July, then flatlined until the first week of September. In fact, the S&P 500 went 42 trading days during that period without moving more than 1 percent. (The record for low volatility was 62 days hit in July 2014.)

But all that changed in one day, Sept. 9, as the Dow shed 400 points, or 2.1 percent, and the S&P 500 and Nasdaq both dropped 2.5 percent. The catalyst for the hemorrhaging was apparently concern over whether the Federal Reserve would raise short-term interest rates at its Sept. 21 meeting.

The Fed decided to wait, which pleased the market, and it mounted a late September rally that offset the month's earlier loss. Basically, the S&P 500 held to its gains of early July by finishing flat in August and September.

The Fed last raised rates 0.25 percentage points in December after holding them at zero since the 2008 financial crisis. The purpose of holding interest rates this low for this long was to juice the moribund economy by reducing borrowing costs for companies and individuals. Still, economic growth has persistently struggled to hit full throttle.

Investors are now left to ponder whether the Fed will hike rates at its next meeting in November, six days before the presidential election, or at its December meeting. Both Wall Street and Main Street are growing increasingly impatient trying to interpret the central bank's next rate move and its impact on stocks.

Many economists and market experts now believe rates have been held "artificially" too low for too long, which propped up stock prices but little else.

Even divisiveness within the Federal Reserve has emerged, with three Fed members voting against the latest decision not to raise while seven members voted the opposite. Three dissenters is unusual, indicating the Fed is likely to raise soon.

"I expect a rate hike in December, and I think it would be viewed positively by the market," Sonders said. "We have the world's most powerful central bank still treating the economic patient as if it remains in the trauma room. That's not a message of confidence to investors."

Disappointing reports

Handwringing over interest rates was not the only issue troubling investors this quarter. Virtually every major economic report released in September disappointed Wall Street.

For starters, retail sales fell 0.3 percent in August -- the first dip since March -- and sales were basically flat in July. Retail sales data is closely monitored by economists and investors because consumer spending accounts for two-thirds of the nation's economic activity.

The industrial part of the economy -- the other one-third of the economy -- stumbled in the quarter too, with manufacturing output hitting the skids. The Institute for Supply Management's index of manufacturing activity fell to 49.4 in August, which is troublesome because readings below 50 indicate that the sector is contracting.

The ISM index stood at 52.6 in July, but over the past year it has averaged only 50.2. The strong dollar has hurt manufacturing because it makes U.S. goods more expensive and less competitive in overseas markets. For example, equipment manufacturer Deere & Co. saw its third-quarter sales decline 11 percent, which took its stock price down about 5 percent.

The much-anticipated monthly jobs report offered no solace either, as nonfarm payrolls rose only 151,000 in August -- below the 180,000 economists expected. This misstep probably sealed the deal for the Fed's September decision not to raise. The Fed is always on the lookout for a tight labor market because it pushes up wages, a key component of inflation. Hourly wages barely moved in August.

Federal Reserve Board Chair Janet Yellen took a seat on Capitol Hill in Washington this week to discuss interest rates and whether there was a failure in oversight by federal banking regulators involving Wells Fargo. (AP Photo/Pablo Martinez Monsivais)

On top of all that, corporate earnings growth again disappointed in the third quarter with an estimated 2.3 percent decline. This marks the sixth consecutive quarter of declines in earnings -- the most since the third quarter of 2008.

"It's hard to make a case for a dramatic move higher in stock prices when earnings are this anemic," said Hugh Johnson of Hugh Johnson Advisors. "Even into next year, I don't think earnings are going to be that strong."

Political uncertainty

Both political parties held their conventions in August, and the first presidential debate was held Sept 26. But the outcome of the November election is still anybody's guess, adding to the uncertainty.

On Tuesday, the first day of trading after the debates, the S&P 500 stock index gained 0.6 percent and was up 1 percent over the final four days of the quarter.

"Historically, the stock market does not like uncertainty, and this year's presidential election holds far more controversy and uncertainty than the norm," said James Stack, editor of InvesTech Research, a market newsletter. "We expect higher volatility over the next six weeks, but history reassures us that the stock market will not drive off a cliff as a result of whoever is elected president."

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Racial tensions also dominated the headlines from the start of the quarter to the end. On July 7, Micah Xavier Johnson ambushed and killed four Dallas police officers and a DART officer. The shootings occurred after a Black Lives Matter protest over police killings in Baton Rouge, La., and Falcon Heights, Minn.

Sadly, that was only a prelude to even more racial strife in the period. On Sept. 20, violent protests erupted in Charlotte, N.C., after a police officer fatally shot Keith Lamont Scott, 43, in the parking lot of an apartment complex. And bombings and other terrorist attacks occurred Sept. 17 in New York City, New Jersey and Minnesota.

"There is this budding hatred in America towards institutions, political elites, income elite, academics, central bankers," Sonders said. "The violent attitudes toward the things we don't like has gotten ugly, and I don't know the solution."

Seeing through despair

As disheartening and demoralizing as these tragedies are for the country, historically they don't tend to have a long-lasting impact on the stock market. For example, the Sept. 11, 2001, attack on the World Trade Center forced the closure of the stock market for four days and lopped off 14 percent from the Dow in a week.

But the market rebounded 21 percent in less than three months. The market seems to see through most of these events and plow forward.

"We sometimes get an uptick in volatility and some short-term market weakness, but unless these things turn into significant economic events, the market recovers," Sonders said.

That certainly seemed to be the market's mindset both for the recent quarter and the full year. The stock market dropped 14 percent at the start of the year, its worst opening six weeks of trading ever. And the market suffered another big downdraft toward the end of the second quarter over Britain's surprising decision to leave the European Union.

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That clipped more than 3 percent from all the major stock indexes in a single day, June 24. This volatility may have punctured investor confidence coming into the third quarter, but ultimately the market regained its footing.

In the face of all this, the S&P 500 finally hit a new all-time high July 11 with a close of 2,137.16. Breaking that record was a long, slow slog, however, as the old record high had been set more than a year earlier on May 21, 2015.

Once the market topped that record, it continued a slow crawl higher through July and into August, hitting 10 new highs -- the most recent being 2,190.15 hit Aug.15. It has since pulled back from that level, but it was a remarkable journey because earlier this year a bear market looked considerably more likely than record highs.

Still, the U.S. economy continues to drag along. Gross domestic product, a measure of all the goods and services produced, expanded at an annualized rate of 1.2 percent in the second quarter, according to the Commerce Department. This at least was an improvement over the measly 0.8 percent pace in the first quarter and 0.9 percent in the fourth quarter of last year.

With corporate earnings clearly in a recession, many investors are bracing for the next shoe to drop -- an economic recession and bear market. But most economists and market prognosticators are reluctant to proclaim either of those events likely in the next six to nine months.

"The weight of evidence is still firmly in the bullish camp, but there are plenty of reasons for caution," said Stack of InvesTech Research.

The power of (un)love

It's counterintuitive, but much of the optimism for the bull market continuing is built on pessimism. The most damaging recessions and bear markets typically arise during periods of "irrational exuberance" among investors and from excesses in the economy.

Currently, investors are devoid of exuberance, as they have been throughout this bull run. The S&P 500 is up more than 200 percent since the bull market began in March 2009, and yet small investors never fully embraced stocks.

Flows into U.S. stock mutual funds were negative -- meaning more money was withdrawn than invested -- in six of the seven years of this bull market. September will mark the 19th consecutive month of net withdrawals from domestic mutual funds, a proxy for small investors. Large institutional investors, such as pension funds, hedge funds, endowments and insurance companies, account for most of the buying, not small investors.

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"No one seems to believe in this market. That is unprecedented," Sonders said. "The skepticism, pessimism, despair --whatever term you want to use -- has been an underlying support for the market because it has kept the market from getting frothy."

In other words, stock valuations -- while a bit pricey -- still remain reasonable, and more important, tons of cash is still on the sidelines waiting to come back into the market when and if investor sentiment improves. As for the current economic expansion, also into its seventh year, there are no excesses in consumer spending, capital spending, wages, inflation or personal debt.

Economic expansions don't simply die of old age. They die from excess, and that doesn't exist currently. Eventually, however, stock prices will buckle and a bear market will arrive if the economy continues to disappoint and corporate earnings don't improve. The good news is that economic growth is expected to move toward 3 percent in the next couple of quarters, and earnings estimates are rising.

At least in the short term, the consensus among market experts is that the bull will muddle through the rest of the year unloved but unbowed.

"If there is one benefit to this anemic recovery, it is that it has kept excess in check," Sonders said.

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